Tuesday, July 20, 2010

Real Rate of Unemployment

A lot of focus has featured on why inflation is so high. A more interesting question is why is unemployment not higher given depth of recession and also, the number who are economically inactive.source ONS

The employment rate in the UK is currently 72.3%. The employment rate is the % of those of working age in employment, (it also includes part time employment). This means we have 27% of the working age population not in employment. This includes

unemployed (either claiming JSAor unemployed by Labour force survey)

Those in full time education

taking early retirement

Left the labour force - e.g. mothers bringing up children, those on disability allowance.

Obviously, if people leave labour force to study, this can be beneficial in long term. But, if a significant proportion of workforce are pushed on to disability allowance or take early retirement this represents significant lost output for economy.

Despite the recession, there are quite a few reasons why unemployment is not higher

cost of redundancy.

Increase in student numbers to avoid a saturated job market.

Underemployment - people working less hours than they would like

Recession hit hardest sectors of the economy which were less labour intensive e.g. finances rather than manufacturing.

Another interesting statistic is the divergence between JSA and Labour Force Survey measure of unemployment. The Labour Force survey suggests 2.5 million people are actively seeking work. But, the claimant count only records 1.5 million claiming JSA. See: Measuring unemployment

One reason is that there are many criteria to be eligible for JSA. Also, many who are unemployed (actively seeking work) actually receive benefits other than JSA.